Giving to Enhance the Getting: How Charity Can Make Us Rich

The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism, by Claire Gaudiani. Times Books, 273 pages, $25.

For Claire Gaudiani, the former president of Connecticut College, philanthropy isn’t just aboutputtingyour nameonahospital wing or posing for a photographer from the Sunday”Styles”section. Rather, whether you pony up $1,000 to hear Bob Dylan mumble at a rain-soaked benefit, or throw a few coins into a Salvation Army kettle on Fifth Avenue, you’re engaging in an act of “citizen generosity” and furthering the development of capitalism, American style. On these shores, charity has, “for almost two hundreds years, created a social environment where capitalism could flourish without destroying democracy.”

In this brief, straightforward and readable book-which winds up as a plea for Americans to dig deeper into their pockets-Ms. Gaudiani argues that charity has been, and is, a wealth-producing activity. “Most people think that Americans are generous because we are rich. The truth is that we are rich, in significant part, because we are generous.”

This isn’t Suze Orman–style pop psychology, a pious reminder that what goes around comes around. Instead, Ms. Gaudiani makes essentially a historical argument, and repeatedly mines the seam of American exceptionalism. Economic, cultural and social systems have developed differently in the New World. From the time Harvard College was founded in the 1630’s-using private funds-charity has been a sort of third force, negotiating and mediating between the always-powerful markets and the ever-growing government. And American philanthropy has always had an entrepreneurial character. Europeans may give-to the extent they give-out of noblesse oblige. We do it for more hard-headed reasons. “We use it to address societal problems. When something is wrong, we don’t wait for the government to fix it.” And we give more than our socialist-leaning allies across the Atlantic. In the U.S., where 89 percent of Americans made voluntary contributions in 2001 and more citizens give than vote, we collectively give about 2 percent of our gross domestic product to charity; the parsimonious Brits give just 0.7 percent of their G.D.P.

Much of the book is devoted to the way investments in human capital (education), infrastructure (museums, hospitals, universities) and ideas (scientific research) have helped fuel our economy’s remarkable long-term growth. Many of today’s value-adding economic sectors essentially started out as charities and continue to be sustained by philanthropy. “Fifty-one percent of all hospital beds are funded by citizen generosity,” she writes. “Forty-nine percent of all two- and four-year institutions of higher learning are not-for-profit.” Citizen contributions fund more than 20 percent of all higher-education students, virtually all orchestras and most social-service organizations.

Hospitals, universities, and YMCA’s don’t just create anchors for communities and jobs, they build social networks and “real assets in the very areas of our society that economists associate with accelerating economic growth.” And in wide-ranging, fluent chapters, Ms. Gaudiani-under whose tenure Connecticut College became an active participant in New London’s economic revival-adduces plenty of evidence. The establishment of non-elitist 19th-century universities like Cornell and Johns Hopkins, the Settlement House movement of the Progressive era, the endowment by the “robber barons” and other magnates of hospitals and museums. Andrew Carnegie funded 2,509 free public libraries, and Julius Rosenwald seeded black communities with YMCA’s. In Chicago today, “the city’s nine philanthropically supported museums bring more revenue to the city than all of its major sports franchises (all businesses) together! And the generosity that funds these facilities raises the value of property in the surrounding communities.” Look at what Lincoln Center has done for the West Side of Manhattan.

Less convincing are Ms. Gaudiani’s descriptions of how generosity has helped to midwife major commercial advances. “Rocketry, commercial aviation, stock market portfolio analysis, and radar are just a few of the important ideas that have flourished because innovative donors supported innovative thinkers and built prosperity,” she writes. Maybe so, but most of the commercial big bangs of the 19th century-the internal-combustion engine, the electrical revolution, the assembly line-were created by profit-seeking entrepreneurs. More recently, major advances (from nuclear discoveries to the Internet) have been funded more by state bodies than by private individuals. What happened at Los Alamos has mattered a lot more than what happened at Tuxedo Park.

Indeed, the expansion of government throughout the 20th century looms over the whole book. Over time, the government has stepped in after individuals or institutions provided the seed capital. And as was the case in Los Alamos, the government has a far greater ability to make a difference. The G.I. Bill-an example of government generosity-provided not only tuition support, but government-supported loans that allowed people to buy houses without a down payment. It was perhaps the major contributor to the post–World War II economic boom.

And that’s why philanthropy is at a crossroads. On the one hand, the “human services model, which for one hundred years has fostered upward mobility and was initially supported by citizen generosity, is now primarily government funded.” We’ve got Medicaid instead of charity hospitals. But on the other hand, private generosity-which, historically, has worked effectively to distribute income and to serve as a sort of “governor” on the winner-takes-all motor of capitalism-hasn’t kept pace with growing income inequality. “Personal generosity has ranged from 1.9 percent of personal income in 1970, to a thirty-year low of 1.5 percent in 1995, and back up to 1.8 percent in 2000.” What’s more, recent changes in the tax code and in government policy may make upward mobility-which lies at the heart of our democratic experiment-more difficult.

All of which means people have to give more, if the American dream is to be vivified for generations current and future. “The U.S. aversion to the kind of high tax rate that is easily tolerated in Europe demands a higher commitment from all citizens to make philanthropic investments in human, physical and intellectual capital, all for the greater good.”

Ms. Gaudiani argues that we have to move away from paternalism to inspire givers to make “meaningful partnership between the wealthy and others in our local communities.” There are plenty of precedents here, from Americorps to Chicago’s Shorebank. Philanthropy should focus not simply on meeting needs, but on providing “wealth-building opportunities for the poor in their communities.” Home ownership could be increased through the establishment of “community home-ownership trust funds,” for example. And she thinks we can use the tax code to encourage such efforts by, for example, letting non-itemizers claim deductions.

This approach would perhaps have sounded like genius a few years ago, when the markets ruled supreme, venture philanthropy was ascendant, and everyone had his or her own personal business plan. But today, the marriage between capitalism and charity seems more problematic than synergistic. Whether it’s Tyco improperly using company funds to make donations for the greater glory of Dennis Kozlowski, Citigroup’s Grubman-motivated donations to the 92nd Street Y, or American Express’ transparent efforts to tie the use of its product to charitable giving (the “Charge Against Hunger”), philanthropy, it seems, could use some insulation from the overweening private sector.

Ms. Gaudiani proposes a revolution, but only in gentle terms. And while she’s masterly on the way philanthropy works, she doesn’t delve too much into why it works. I would bet that the key to getting people to give more is understanding why they give what they give. And Ms. Gaudiani isn’t particularly curious about the psychology of philanthropy. It’s widely believed, for example, that a Protestant bourgeoisie’s need for control in a rapidly changing society provided the energy behind the Settlement House movement. Others give so as to expiate the sin of making money through underhanded means-think John D. Rockefeller or Michael Milken. And others give conspicuously as a form of ego-boosting and status-seeking (see under Weill, Sanford, and Perelman, Ronald).

“We have to become at least twice as generous as we ever have been as a nation if we hope to conquer the problems that we face today,” Ms. Gaudiani writes. Good luck. Our President whispers about compassionate conservatism out of one side of his mouth and screams “It’s your money!” out of the other. And, too frequently, consumer spending-not philanthropy-is conflated with patriotism and service to one’s fellow man. The message from on high is that if you really want to help someone less fortunate and, at the same time, add value to the economy, go to Saks.

Daniel Gross, who writes the “Moneybox” column for Slate, is co-author (with Davis Dyer) of The Generations of Corning: The Life and Times of a Global Corporation (Oxford University Press) .